Sec. 22. (d) (6) Involuntary liquidation and replacement of inventory. Taxable Years (A) Adjustment of Net Income (A) Adjustment of Net Income and Resulting Tax.-If, for any and Resulting Tax.-If, for any the opening inventory of the year taxable year beginning after De- taxable year beginning after Deof involuntary liquidation over the cember 31, 1941, and prior to the cember 31, 1941, and prior to the termination of the present war as termination of the present war as aggregate replacement cost; or proclaimed by the President, the proclaimed by the President, the (ii) Decreased by an amount closing inventory of a taxpayer in-closing inventory of a taxpayer in- equal to the excess, if any, of the ventorying goods under the method ventorying goods under the method aggregate replacement cost of such over the aggregate cost provided in this subsection reflects provided in this subsection reflects goods a decrease from the opening inven- a decrease from the opening inven- thereof reflected in the opening intory of such goods for such year, and if, at the time of the filing of tary liquidation. tory of such goods for such year, ventory of the year of the involunand if, at the time of the filing of the taxpayer's income tax return the taxpayer's income tax return for such year, the taxpayer elects The taxes imposed by this chapter for such year, the taxpayer elects to have the provisions of this para- and by Subchapter E of Chapter 2 to have the provisions of this paragraph apply and so notifies the for the year of such liquidation and graph apply and so notifies the Commissioner, and if, at the time for all taxable years intervening beCommissioner, and if, at the time of such election, it is established to tween such year and the year of of such election, it is established to the satisfaction of the the satisfaction of the Commissioner, in accordance with such reg-giving effect to such adjustments. Commis- replacement shall be redetermined, sioner, in accordance with such reg-ulations as the Commissioner Any increase in such taxes resultulations as the Commissioner may prescribe with the approval of ing from such adjustments shall be may prescribe with the approval of the Secretary, that such decrease is assessed and collected as the Secretary, that such decrease is attributable to the involuntary liqattributable to the involuntary liquidation of such inventory as deuidation of such inventory as de- fined in subparagraph (B), and if fined in subparagraph (B), and if the closing inventory of a subsethe closing inventory of a subsequent taxable year, ending not more (B) Definition of Involuntary quent taxable year, ending not more than three years after the terminathan three years after the termina- tion of the present war Liquidation. The term "involunas protion of the present war as proclaimed by the President, reflects tary liquidation", as used in this claimed by the President, reflects a replacement, in whole or in part, paragraph, means the sale or other a replacement, in whole or in part, of the goods so previously liqui- disposition of goods inventoried a replacement, in whole or in part, dated, the net income of the tax- under the method described in this of the goods so previously liquidated, the net income of the tax payer otherwise determined for the subsection, either voluntary or inpayer otherwise determined for the shall be adjusted as follows: year of such involuntary liquidation voluntary, coupled with a failure on the part of the taxpayer to puryear of such involuntary liquidation shall be adjusted as follows: chase, manufacture, or otherwise close of the taxable year in which produce and have on hand at the such sale or other disposition occurred such goods as would, if on (Continued in fifth column.) (i) Increased by an amount equal to the excess, if any, of the aggregate cost of such goods reflected in (Continued in third column.) (i) Increased by an amount equal gate cost of such goods reflected in to the excess, if any, of the aggrethe opening inventory of the year of involuntary liquidation over the (Continued in fourth column.) a defi ciency but without interest, and any credited or refunded to the taxoverpayment so resulting shall be payer without interest. (d) If the inventory method described in section 22 ∙(d) (1), as amended, of the Internal Revenue Code is used for the first taxable year beginning after Decem Taxable Years Sec. 22 (d) (2) (B) and (d) (5) (B), I. R. C., supra, again amended by Sec. 118(a) and (b), R A. of 1942, by omitting language in stricken through type and adding language in italics. Sec. 118 (c) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1938. Taxable Years Sec. 22 (d) (2) (B), I. R. C., supra, again amended by Sec. 118 (a), R. A. of 1942, by omitting language in stricken-through italics and adding language in underlined italics. Sec. 118 (c) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1938. Sec. 22 (d) (5) (B), I. R. C., supra, again amended by Sec. 118 (b), R. A. of 1942, by omitting language in stricken-through italics and adding language in underlined italics. Sec. 118 (c) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1938. Taxable Years Taxable Years aggregate replacement cost; or hand at the close of such taxable if such failure on the part of the (i) Decreased by an amount year, be subject to the application taxpayer is due, directly and exequal to the excess, if any, of the of the provisions of this subsection, clusively, (i) to enemy capture or aggregate replacement cost of such if such failure on the part of the control of sources of limited foreign goods over the aggregate cost taxpayer is due, directly and ex- supply; (ii) to shipping or other thereof reflected in the opening in-clusively, (i) to enemy capture or transportation shortages; (iii) to ventory of the year of the involun- control of sources of limited foreign material shortages resulting from tary liquidation. supply; (ii) to shipping or other priorities or allocations; (iv) to transportation shortages; (iii) to labor shortages; or (v) to other prevailing war conditions beyond the control of the taxpayer. The taxes imposed by this chapter material shortages resulting from and by Subchapter E of Chapter 2 priorities or allocations; (iv) to for the year of such liquidation and labor shortages; or (v) to other case of any taxpayer subject to the (C) Replacements.-If, in the for all taxable years intervening be- prevailing war conditions beyond provisions of subparagraph (A), tween such year and the year of replacement shall be redetermined, the control of the taxpayer. the closing inventory of the taxgiving effect to such adjustments. (C) Replacements.-If, in the payer for a taxable year, subsequent Any increase in such taxes result-case of any taxpayer subject to the to the year of involuntary liquidaing from such adjustments shall be provisions of subparagraph (A), placement of the goods so liquition but prior to the complete reassessed and collected as a deficiency the closing inventory of the tax-dated, reflects an increase over the but without interest, and any over- payer for a taxable year, subsequent opening inventory of such goods for payment so resulting shall be cred-to the year of involuntary liquida- the taxable year, the goods reflectited or refunded to the taxpayer tion but prior to the complete re-ing such increase shall be considered, without interest. placement of the goods so liqui- in the order of their acquisition, as (B) Definition of Involuntary dated, reflects an increase over the Liquidation. The term "involun- opening inventory of such goods for having been acquired in replacetary liquidation", as used in this the taxable year, the goods reflectment of the goods most recently paragraph, means the sale or other ing such increase shall be consid- of involuntary liquidation) and not liquidated (whether or not in a year disposition of goods inventoried under the method described in this ered, in the order of their acquisi- previously replaced, and if the liqtion, as having been acquired in uidation was an involuntary_liquisubsection, either voluntary or involuntary, coupled with a failure replacement of the goods most re-dation shall be included in the incently liquidated (whether or not in ventory of the taxpayer for the on the part of the taxpayer to pura year of involuntary liquidation) year of replacement at the invenchase, manufacture, or otherwise produce and have on hand at the and not previously replaced, and if tory cost basis of the goods reclose of the taxable year in which the liquidation was an involuntary placed. such sale or other disposition ocliquidation shall be included in the curred such goods as would, if on inventory of the taxpayer for the hand at the close of such taxable year of replacement at the invenyear, be subject to the application tory cost basis of the goods of the provisions of this subsection, placed. (Continued in sixth column.) (Continued on page 56.) (D) Election Irrevocable.—An election by the taxpayer to have the provisions of this paragraph re-apply, once made, shall be irrevocable and shall be binding for the (Continued on page 56.) ber 31, 1938, then, in determining income for the pre- tion 22 (d) (2), as amended, of such Code shall be at ceding taxable year, the closing inventory of such year cost." of the goods specified in the application under sec (D) Election Irrevocable.-An year of the involuntary liquidation election by the taxpayer to have and for all determinations for subthe provisions of this paragraph sequent taxable years insofar as apply, once made, shall be irrevo- they are related to the year of liqcable and shall be binding for the uidation or replacement. year of the involuntary liquidation (E) Adjustment in Certain Cases. and for all determinations for sub--If the adjustments specified in sequent taxable years insofar as subparagraph (A) are, with respect they are related to the year of liquidation or replacement. such to any taxable year, prevented, on the date of the filing of the income (E) Adjustment in Certain Cases. tax return of the taxpayer for the -If the adjustments specified in year of the replacement, or within subparagraph (A) are, with respect three years from such date, by any to any taxable year, prevented, on provision or rule of law (other than the date of the filing of the income this subparagraph and other than tax return of the taxpayer for the section 3761, relating to comproyear of the replacement, or within mises), adjustments shall three years from such date, by any nevertheless be made if, in respect provision or rule of law (other than of the taxable year for which the this subparagraph and other than adjustment is sought, a notice of section 3761, relating to comprodeficiency is mailed or a claim for mises), such adjustments shall refund is filed, as the case may be, nevertheless be made if, in respect the filing of the income tax return within three years after the date of of the taxable year for which the for the year of replacement. If, at adjustment is sought, a notice of the time of the mailing of such nodeficiency is mailed or a claim for tice of deficiency or the filing of refund is filed, as the case may be, such claim for refund, the adjustwithin three years after the date of ment is so prevented, then the the filing of the income tax return amount of the adjustment authorfor the year of replacement. If, at ized by this paragraph shall be limthe time of the mailing of such no- ited to the increase or decrease of tice of deficiency or the filing of the tax imposed by this chapter and such claim for refund, the adjust- Subchapter E of Chapter 2 prement is so prevented, then the viously determined for such taxable amount of the adjustment author-year which results solely from the ized by this paragraph shall be lim- effect of subparagraph (A), and ited to the increase or decrease of such amount shall be assessed and the tax imposed by this chapter and collected, or credited or refunded, Subchapter E of Chapter 2 pre- in the same manner as if it were a viously determined for such taxable | deficiency or an overpayment, as year which results solely from the effect of subparagraph (A), and such amount shall be assessed and collected, or credited or refunded, in the same manner as if it were a deficiency or an overpayment, as the case may be, for such taxable year and as if, on the date of the filing of the income tax return for the year of the replacement, three years remain before the expiration of the periods of limitation upon assessment or the filing of claim for paragraph in the same manner as if it were a deficiency or to be refund for the taxable year. The credited or refunded in the same tax previously determined shall be manner as if it were an overpayascertained in accordance with sec- ment shall not be diminished by any tion 734 (d). The amount to be credit or set-off based upon any assessed and collected under this item, inclusion, deduction, credit, paragraph in the same manner as exemption, gain, or loss, other than if it were a deficiency or to be one resulting from the effect of subcredited or refunded in the same paragraph (A). Such amount, if manner as if it were an overpay-paid, shall not be recovered by a the case may be, for such taxable The Taxable Years Beginning in 1941 Taxable Years ment shall not be diminished by any credit or set-off based upon any item, inclusion, deduction, credit, exemption, gain, or loss, other than one resulting from the effect of subparagraph (A). Such amount, if paid, shall not be recovered by a claim or suit for refund, or suit for erroneous refund based upon any item, inclusion, deduction, credit, exemption, gain, or loss, other than one resulting from the effect of subparagraph (A). Sec. 22 (d) (6), I. R. C., supra, added to I. R. C., by Sec. 119, R. A. of 1942. Sec. 101 of said Act makes amendment applicable to taxable years beginning 31, 1941. after Dec. Sec. 22. (e) Distributions by Sec. 22. (e) Distributions by Sec. 22. (e) Distributions by corporations.-Distributions by cor- corporations.-Distributions by cor- corporations.-Distributions by corporations shall be taxable to the porations shall be taxable to the porations shall be taxable to the shareholders as provided in section shareholders as provided in section shareholders as provided in section 115. 115. Sec. 22. (f) Determination of Sec. 22. (f) Determination of gain or loss. In the case of a sale gain or loss. In the case of a sale or other disposition of property, or other disposition of property, the gain or loss shall be computed the gain or loss shall be computed as provided in section 111. as provided in section 111. Sec. 22. (k) Alimony, etc., in- Sec. 22. (k) Alimony, etc., income. In the case of a wife who come.-In the case of a wife who is divorced or legally separated is divorced or legally separated from her husband under a decree from her husband under a decree 115. Sec. 22. (f) Determination of gain or loss.-In the case of a sale or other disposition of property, the gain or loss shall be computed as provided in section 111. Sec. 22. (g) Gross income from sources within and without United States. For computation of gross income from sources within and without the United States, see section 119. Sec. 22. (h) Foreign personal holding companies.— For provisions relating to gross income of foreign personal holding companies and of their shareholders, see section 334. Sec. 22. (i) Consent dividends. For inclusion in gross income of amounts specified in shareholders' consents, see section 28. Sec. 22. (j) Income from mortgages made or obligations issued by joint stock land banks. For taxable status of income derived from mortgages made or obligations issued by Joint stock land banks, see section 3799. |